IATA ANNUAL REVIEW 2012 Tony Tyler Director General & CEO

International Air Transport Association Annual Report 2012 68th Annual General Meeting Beijing, June 2012 Contents IATA Membership 2 Board of Governors 4 Director General’s message 6 The state of the industry 10 Feature: What is the benefit of global connectivity? Safety 18 Feature: How safe can we be? Security 22 Feature: Do I need to take my shoes off? Taxation & regulatory policy 26 Feature: What is right for the passenger? Environment 30 Feature: Can aviation biofuels work? Simplifying the Business 36 Feature: What’s on offer? Cost efficiency 42 Feature: Why does economic regulation matter? Industry settlement systems 48 Aviation solutions 52

Note: Unless specified otherwise, all dollar ($) figures refer to US dollars (US$).

This review uses only 100% recycled paper (Cyclus Print) and vegetable inks.

# IATA Membership as of 1 May 2012

ABSA Cargo Blue Panorama Donavia Dragonair Aegean Air Pacific bmi Airline Egyptair Aero República Aerolineas C.A.L. Cargo Airlines Estonian Air Aeromexico Airways Air Euroatlantic Airways European Air Transport Air Algérie EVA Air FedEx Express Air Baltic AlMasria Universal Airlines China Eastern ALS Sterling Cirrus Airlines Garuda Israeli Airlines CityJet Armavia Condor Berlin Atlasjet Airlines Austrian Continental Micronesia Hong Kong Express Airways Air Corsair Air B&H Airlines Airlines Air Bahrain Air Cubana InselAir Airways Interair Air —Belarusian Airlines Air Biman DHL Air Israir DHL International E.C.

2 MEA— Airlines UPS Airlines fly US Airways MIAT—Mongolian Airlines Jet Lite SriLankan Airlines JetBlue SunExpress Virgin International JSC Nordavia—RA Airlines SWISS Airlines Syrianair PAL— TAAG—Angola Airlines Volga-Dnepr Airlines KLM TACA VRG Linhas Aéreas PGA—Portugália Airlines TACA Peru Airways PIA—Pakistan International TACV Wideroe LACSA Airlines TAM—Transportes Aéreos Xiamen Airlines LAM—Linhas Aéreas de PLUNA del Mercosur Moçambique TAM Linhas Aéreas LAN Airlines TAME—Linea Aérea del LAN Ecuador LAN Cargo TAP Portugal Associate Members LAN Perú TAROM LAN Ecuador Royal Brunei International Austral Lauda Air THY— CityLine SAA— LOT Polish Airlines SAS TNT Airways SATA Air Açores Lufthansa Saudi Arabian Airlines Airlines TransAsia Airways TUIfly Air SIA— Airlines International Airlines Malév SIA Cargo Malmö Aviation Siberia Airlines Cargo Silkair

3 The Board of Governors

Peter Hartman Chairman IATA Board of Governors 2011-2012

4 Khalid Abdullah Almolhem Naresh Goyal Titus Naikuni SAUDI ARABIAN AIRLINES JET AIRWAYS KENYA AIRWAYS

Richard Anderson Peter Hartman Masaru Onishi DELTA AIR LINES KLM JAPAN AIRLINES

David Barger James Hogan Calin Rovinescu JETBLUE ETIHAD AIRWAYS AIR CANADA

David Bronczek Harry Hohmeister Emirsyah Satar FEDEX EXPRESS SWISS GARUDA

Yang Ho Cho Thomas Horton Vitaly G. Saveliev KOREAN AIR AMERICAN AIRLINES AEROFLOT

Andrés Conesa Alan Joyce Jean-Cyril Spinetta AEROMEXICO QANTAS AIR FRANCE - KLM (representing AIR FRANCE) Enrique Cueto Hossam Kamal LAN AIRLINES EGYPTAIR Antonio Vázquez IBERIA German Efromovich Temel Kotil AVIANCA TURKISH AIRLINES Willie Walsh International Airlines Group Christoph Franz Liu Shaoyong (representing BRITISH LUFTHANSA AIRWAYS)

Rob Fyfe Samer Majali AIR NEW ZEALAND GULF AIR

Goh Choon Phong Siza Mzimela SOUTH AFRICAN AIRWAYS

5 The air transport industry is fragile. Airlines made a profit of $7.9 billion in 2011. That is half of the $15.8 billion profit realized in 2010. And on 2011 revenues of $598 billion, that translated to a net profit margin of just 1.3%.

The current year promises to be more challenging. April was the 15th month with oil prices above $100 per barrel (Brent). Fuel now accounts for over 30% of average operat- ing costs. A decade ago, it was 13%. A further price spike could easily push the industry into losses.

Airlines are similarly vulnerable to economic cycles. Historically, the airline industry has pro- duced a collective loss when GDP growth falls below 2%. In April 2012, the Economist Intelligence Unit was predicting growth of 2.2%. Political insta- bility continues in the Eurozone as it grapples with the sover- eign debt crisis. The and have already gone back into reces- sion. If others follow, the ripple effects would most certainly be felt in all global markets.

6 The Director General’s message

In the face of such strong head- 2011 was the safest year for providers, and manufacturers political gains of high taxes, winds, keeping revenues ahead civil aviation. There was one reiterated their commitment to misguided regulations, and of costs is a major challenge. hull loss for every 2.7 million improve fuel efficiency 1.5% growth restrictions. We still expect airlines to make flights with Western-built jets— annually to 2020, to achieve a collective profit in 2012. But a 61% improvement on the carbon-neutral growth from Job creation is a priority of all it will be razor thin. Conserving performance a decade ago. The 2020, and to cut net emissions governments. Aviation can help. cash, carefully matching capac- IATA Operational Safety Audit in half by 2050 compared with Already our industry supports ity with demand, and managing (IOSA) is making a difference. 2005 levels. the livelihoods of 56.6 mil- costs will remain the focus for Airlines on the IOSA regis- lion people and $2.2 trillion in most airline managements. try—some 375—outperformed Governments are important economic activity. And govern- the accident rate for non-IOSA partners in meeting these ments must understand that Behind the scenes, IATA has operators by 52%. targets. They must implement with an enabling policy environ- redoubled its efforts to man- policy measures that de-risk ment we could do much more. age the industry’s settlement Together with the International investment in sustainable biofu- When aviation gets stronger, so processes reliably. Fully $367 Civil Aviation Organization els, unlocking their potential to does the economy. billion passed through IATA’s (ICAO), the US Department reduce aviation’s carbon foot- financial systems in 2011. The of Transportation, and the print up to 80%. And they must I am passionate about aviation. Billing and Settlement Plan— , we con- agree on a global approach to As the Director General and the largest among IATA’s finan- tinue to build the Global Safety positive economic measures CEO of IATA I have proudly cial services—settled nearly Information Exchange. This through ICAO. Progress is sung aviation’s praises and $250 billion in volumes with collection and sharing of data being held back by the global advocated policies and partner- 99.971% accuracy. We are will enable analysis for targeted backlash against the extra-terri- ships that support its success. determined to do even better. programs to make our safe torial inclusion of aviation in the I thank the IATA Board of industry even safer. EU Emissions Trading Scheme Governors and our members IATA is strengthening its settle- (ETS). ICAO offers a process and partners for their great ment systems. By migrating Security processes must evolve to reach the global consen- support in helping IATA help the functions to regional hubs, we to be risk-based and data sus that all parties—including industry. will operate to a single global driven. Our flagship security —desire. standard on fully integrated IT programs—Checkpoint of the Aviation is indeed fragile. But systems. The migration will take Future and Secure Freight—are The ETS impasse highlights by working together, I am confi- place progressively until mid- built around these principles. the urgent need to reaffirm our dent that we can strengthen the 2014. In a separate program, Support from governments is agenda with governments on foundations of our safe, secure, we are taking paper out of the growing as they recognize the jobs and growth. Many govern- and sustainable industry. processes for the $49.5 billion value of these initiatives. ments sacrifice the benefits of IATA Clearing House. aviation-enabled connectivity Aviation remains united in its for the shortsighted budget and Along with ensuring reliable global approach to managing financial services, IATA is its carbon emissions. Airlines, working with its members on airports, air navigation service aviation’s most fundamental challenges—safety, security, Tony Tyler and sustainability. Director General & CEO

7

THE STATE OF THE INDUSTRY The story in 2011.

Direct services are increasing.

In 2011, air transport pas- Worldwide international and In 2011, airlines added 865 di- When looked at in isolation, senger traffic grew 5.9% but domestic revenue passenger rect services, bringing the total the trends in domestic air profits fell 50% as difficult kilometers flown grew 5.9% number of direct airport-pair travel have a different pattern. economic headwinds buf- to a new high of 5.2 trillion connections to nearly 35,000 Representing just under 40% feted the industry. kilometers in 2011. The growth by the end of 2011, but there of worldwide industry volumes, of the past two years compares was substantial geographical domestic aviation markets are favorably with the 4% to 5% variation in passenger market dominated by the United States trend of the past 20 to 30 performance. Latin American and China. The US market years. Contributing to the surge airlines saw the fastest growth, expanded just 1.3% in 2011. in air travel was a rebound with an expansion of over 11%. But the Chinese market grew from the recession of 2008 African airlines experienced almost 11%. The Indian market, and 2009. Clearly, air travel the weakest performance, which is one-twelfth the size demand remains robust despite with barely positive growth, of the US market, grew even slow economic growth in many partly due to the impact of the faster at 16%. is another regions. Arab Spring on the north of example of an emerging market the . Among airlines with large potential. Growth Nevertheless, despite the in the larger regions, North there was almost 14% in 2011. increased passenger demand, American carriers grew less Japan’s domestic market, con- airlines struggled to make than 3%, reflecting the maturity versely, shrank 15% because of significant profits. Although of their domestic markets and the tsunami and earthquake in revenues rose 9.4% to $598 the lack of significant capac- early 2011. billion, profits fell by almost half ity growth. Growth for the compared with 2010, to $7.9 Asia-Pacific airlines was over billion. This was largely due to 5%, but down on the previ- a sharp increase in the cost of ous year’s performance, due fuel; the average price of a bar- mostly to the impact on travel rel of oil rose from $79 in 2010 of the tsunami and earthquake to $111 last year. in Japan. European airlines saw the strongest growth, at 9%, Looking at 2012, rising oil among airlines in the three larg- prices and continued economic est regions. weakness, especially in Europe, appear to be the greatest threat to airline profitability.

Domestic passenger market in millions (source: IATA) Total passenger and air freight traffic, seasonally adjusted (source: IATA) China USA

10 An average jet kerosene Net posttax earnings were Revenues expanded to nearly price of $127.50 in 2011 set a halved to $7.9 billion in 2011. $600 billion. new record.

Airline earnings before interest Next to Africa, the weakest- Airline industry revenues ex- The average price of a barrel and tax (EBIT) declined from performing region was Europe, panded 9.4% in 2011 to $598 of jet kerosene rose 40%, to the highs of 2010 to $16.2 where EBIT margins barely billion, driven in equal part by a $127.50, in 2011. This took av- billion (2.7% of revenues). exceeded 1% on average. But rise in volumes and an improve- erage fuel prices above the pre- Although this decline was not again there is much variation, ment in yield. Passenger and vious annual record of $126.70 as severe as the 2008 experi- with the large quoted airlines cargo revenues rose above per barrel, set in 2008. ence, at the net posttax level in Europe delivering a similar prerecession levels, but the the impact was more marked. performance to those in the industry has lost around two In 2008, jet fuel prices spiked After debt interest, tax, and United States. years of revenue growth since to over $180 a barrel before financial transactions, industry early 2008. falling sharply, whereas in 2011 profits were more than halved US airlines saw their profits the peak was $143, 20% lower from 2010 to a total of $7.9 reduced in 2011, but they In 2010, the network airlines than in 2008. By the end of the billion, or 1.3% of revenues. continue to generate EBIT had a strong boost relative to year, prices were still high. The Profits were squeezed by a margins close to 3% despite other airlines in the industry contrasting extreme volatility of combination of slower revenue little market growth as a result from the robust growth of long- fuel prices in 2008 caused bil- growth and further large fuel of limited additional capacity. haul premium revenues and lions of dollars of fuel hedging cost increases. Profitability in the US domestic cargo. During 2011, there was losses. A major problem for air- market has been particularly further growth in the premium line fuel hedging in 2011 was The regional experience contin- robust as a result. segment, but there was no the distortion in the price of the ued to be diverse. Asia-Pacific longer the marked gain versus West Texas Intermediate crude airlines delivered the largest Elsewhere, the Latin American other segments. Cargo revenue oil benchmark. Nonetheless, absolute net profits and the airlines continued to show rea- growth slowed sharply in 2011. new industry-wide hedging highest EBIT margins for the sonable profit, albeit at margins practices and the stability of the second consecutive year. But that were lower than in 2010. crack spread with the Brent oil within this region there was The Middle Eastern airlines saw benchmark meant that the fuel much variation, with signifi- only a minor reduction in profit- hedging experience of airlines cant losses in Indian domestic ability in 2011, as structural in 2011 was much better than markets and substantial profit in improvements at some airlines it was in 2008. Chinese domestic markets. partly offset the rise in fuel costs. Fuel prices were driven higher in 2011 by crude oil costs. The crack spread between jet fuel and crude remained at 15%. The upward pressure on oil prices came from a com- bination of continuing strong demand from emerging econo- Total net profits in $ billion Brent oil price $/barrel mies and a supply squeeze by (source: IATA) (source: Platts) producers, shown in the decline of oil inventories. More recently, concern about supply disrup- tion caused by the situation in Iran has put further upward pressure on energy prices.

The airline industry’s fuel bill rose to $177 billion in 2011, some 30% of costs.

11 Airline load factors exceeded Goods worth over $5 trillion 78%, close to historic highs, Strong business travel kept were transported by air in and the fleet continued to ex- premium seat growth ahead 2011, but air cargo volumes pand, with 1,268 new aircraft of economy seat growth. slipped slightly. delivered.

A sign of buoyant air travel After an exceptionally strong Worldwide passenger capacity factors rise even further, to a markets in 2011 was the rebound in 2010, air freight accelerated in 2011, growing new high of 79.6%. This was growth in the sale of first- and metric ton kilometers flown fell 6.6% as measured by available an important factor leading to business-class seats, which 0.4% worldwide in 2011. The passenger kilometers in inter- stronger airline profitability in expanded 5.5% on international air freight market is no big- national and domestic markets. the US and Chinese domestic markets compared with the ger than it was four years ago. That exceeds the expansion of markets in 2011. growth in economy seat sales Since air freight volumes have 4% in 2010. of 5.1%. This, however, was not on average grown from 5% to The delivery of new aircraft apparent in all markets. Within 6% a year over the past 20 to There was a substantial differ- picked up in 2011, with 1,268 Europe, where distances are 30 years, growth in the past ence between domestic and in- new aircraft delivered to relatively short, there has been four years has been exception- ternational markets. In domestic airlines. Taking into account a structural shift away from ally weak. Even so, with the es- markets, slightly less capacity aircraft retirements, which typi- premium seats, resulting in timated value of world trade at was added than growth in the cally involve around 400 to 500 the faster growth of economy more than $16 trillion in 2011 market: 4.0% versus 4.1%. The aircraft, hull losses because travel. On the important airlines were still responsible opposite prevailed in interna- of accidents, and movements transatlantic and transpacific for carrying more than $5 trillion tional markets, where the pace in and out of storage, the in- markets, though, premium travel worth of the world economy’s of capacity expansion was in service fleet of the commercial continued to grow substantially internationally traded goods. excess of the expansion of airline industry expanded 763 faster than economy travel. demand: 8.1% versus 6.9%. aircraft to 24,605 aircraft by This reflected the continua- But the excess of capacity year-end 2011. tion of business travel growth growth was not too large, and in most regions and the lull in so load factors remained close leisure travel in many developed to historic highs in 2011, with economies because of weak a worldwide average of 78.3%. consumer confidence. Domestic markets saw load

International passengers by seat class Passenger and cargo load factors (source: IATA) (source: IATA)

12 Airline cash flows of 8% to Return on capital of 3.5% was 11% of revenue approached less than half what investors Yields improved 4% in 2011. mid-cycle levels. expect. Prospects for 2012.

Passenger yields worldwide The profile of airline cash flows Financial sustainability means The threat of a catastrophic rose 4% in 2011, following an was very different during 2011 generating profit and paying default within the Eurozone increase of more than 6% in than in 2008, when there was investors a normal return. Such remains a possibility, and the 2010. Much of the 2011 yield a similar average rise in fuel a return is generally bench- lack of economic growth in the increase was as a result of prices. In 2008, cash flows fell marked as the average cost of region means that, collectively, airlines attempting to recoup sharply and turned negative for equity and debt or the WACC European airlines could suffer costs associated with the rise some airlines. In 2011, there (weighted average cost of a loss. Although aviation at a in the price of oil. Airlines man- was a squeeze at the beginning capital). Debt spreads have global level is still expected to aged to improve fuel efficiency of the year but on average cash narrowed, but the volatility of make a small profit, the incred- and reduce other unit costs, but flows, as proxied by EBITDA, airline earnings means that eq- ibly thin industry margin—likely they still faced an increase in were at quite comfortable uity remains expensive. On av- to be less than 1%—leaves overall unit costs of 5%. High mid-cycle levels of 8% to 11% erage, the airline industry cost airlines vulnerable to shocks. load factors in the passenger of revenues in all three of the of capital is 7% to 8%. The business allowed airlines to re- world’s major regions. This, 2010 return on invested capital Rising oil prices are a particular cover part of this cost increase. however, was down on the (ROIC) in the airline industry concern, with an average price 2010 performance. was boosted by the profits of at least $115 per barrel in generated, rising to 4.1%. But 2012. If the industry as a whole Asia-Pacific airlines, in ag- ROIC fell back to an estimated is to remain profitable under gregate, continued to see the 3.5% in 2011. That was less such circumstances, it will be strongest cash flows in 2011, than half the rate required to reliant on robust growth in although the weakness of cargo pay investors what they could Asia and the emerging markets markets meant that they suf- earn from investing that capital in the Middle East and Latin fered a significant deterioration in an alternative industry with a America and on the ability of as the year progressed. US and similar risk profile. airlines in mature markets to European airlines, in aggregate, keep tight control of costs. saw lower but stable cash There were some airlines flows throughout the last three that did create value for their quarters of the year. Investors, investors in the past two years. of course, would want to see This group of airlines includes much stronger cash flows, long-haul network airlines, given the capital they have in- regional airlines, low-cost carri- vested in the industry, but com- ers, and other business models. pared with the average industry It also encompasses airlines experience of past cycles the from most regions of the world. 2011 financial performance is These airlines, though, are reasonably good. the exception and are few in number. Airline fleet numbers Passenger and cargo yields (source: Ascend) (source: IATA)

13 FEATURE What is the benefit of global connectivity?

The economic component The social component

Aviation safely carries some Global business and tourism nearly 100 million jobs. Fully Increasing cross-border travel 2.8 billion passengers and 48 rely transport. Access 51% of international tourism facilitates ever closer relation- million metric tons of cargo to international markets and relies on air service, according ships, between countries and and supports 56.6 million the increasing globalization of to the World Travel and Tourism between individuals from dif- jobs and $2.2 trillion in eco- production makes worldwide Council. ferent nations. Eased restric- nomic activity. As such, air connections essential. The total tions on the flow of goods and transport is a vital component value of goods transported by Air transport plays a major role people would encourage even of modern life and integral to air represents 35% of world in developing nations, generat- further integration. sustainable growth. trade. ing $490 billion in economic activity. Well over half of all the Airlines facilitate a global Beyond this, aviation makes jobs aviation supports glob- workforce and keep family a direct contribution to ally—35.9 million—are based in members united. For example, global GDP greater than developing economies. over nine million Lebanese live most industries, including the abroad. Three million people of pharmaceutical or automotive The industry’s economic impact Lebanese descent live in the sectors. In 2010, the $539 will continue to grow. By 2030, United States and around a mil- billion it contributed would have it is forecast that 82 million jobs lion live in the São Paulo area. placed air transport as the 19th and $6.9 trillion in economic Aviation brings them and their $5.3 largest country in GDP terms, activity will have air transport at families together. approximately equivalent to their root. trillion or Poland. Airlines also provide a means for labour mobility, which in turn The total value of goods And the boon of connectivity lead to remittances, whereby transported by air goes further than these impres- migrant workers are able to annually, which is 35% sive figures to touch peripheral send money home. Remittances of all world trade. areas, such as encouraging $200 are an important source of rev- investment and innovation and enue for developing countries. allowing companies to attract In the Philippines, more than talent across borders. billion 10% of the domestic economy The boost to the world’s relies on remittances. In Tonga 82.2 The numbers do not include and Moldova the percentage is economy from global tourism, which would not be aviation’s increased even higher. million able to post its impressive connectivity in the figures without support from last 20 years. The total estimated the airlines. In 2011, tourism jobs to be supported generated $1.8 trillion in global by aviation in 2030. economic activity and provided

d & Dri Foo nk Industry GDP contribution comparisons Chemical

ns r Tra por Ai t mo uto tive A aceu $1.162 rm tic a a $977 h l P $539 xt trillion billion $484 $445 Te ile billion billion billion $236 billion

14 Source: All figures are 2010 data from the Aviation Benefits Beyond Borders publication www.aviationbenefitsbeyondborders.org.

60% 3.5x The real-term reduction The average aviation job is Aviation’s global employment in the cost of air travel 3.5 times more productive and GDP impact since 1970. than other jobs.

A 2007 World Bank report offered cargo space. British conservatively estimates that Airways carried vital materials overall remittances are worth on a scheduled flight to ease twice as much as official devel- the water situation and then opment aid globally. Research later dispatched a 747F on shows that a 10% rise in remit- behalf of Oxfam and UNICEF. tances would lead to a 3.5% Lufthansa Cargo also donated decline in the number of im- two critical relief flights. These poverished people worldwide. are only a few examples of the Each dollar remitted produces many instances of help from the more than $2 in additional air transport industry. economic activity. It is not just about assisting Aviation, moreover, supplies a in times of trouble. Air trans- vital lifeline to remote communi- port is equally intrinsic to the ties cut off from road networks. good times. Aviation’s ability In such isolated areas, essential to connect distant locations services, such as health care, quickly, safely, and securely has depend on speedy air links. For given the world the chance to example, over 1,000 communi- share and experience firsthand ties in ’s far north and its amazing cultural heritage, more than 200 communities in including the great treasures Alaska rely mainly on aviation. of yesterday, such as the GDP impact Terracotta Warriors, the Mask of Aviation direct Emergency response to natural of Tutankhamen, and the works jobs by region disasters or in times of war of Caravaggio. is likewise equally reliant on aircraft speed and reliability. In $538.9 2011, the de- billion clared a famine in East Africa. Food, medicine, and other relief aid were quickly donated, and UNICEF called on the airlines to help get the donations to the region. FedEx promptly pro- vided a - service. UPS and Virgin

Aviation direct $58 jobs by region $5.0 billion 8.36 The annual European million billion subsidy to rail travel (2007- 09). Air travel received a The cost of the Icelandic $440 million subsidy for volcano to the world’s the same period, mostly economy due to lack of for economically unviable air services. lifeline routes.

15

SAFETY Making flying even safer.

Implementation of ICAO standards and recommended practices is the essential starting point.

Aviation had its safest year At 0.37 hull losses per million IATA has been engaged with have systems on board that ever in 2011. Zero accidents flights, the 2011 accident rate ICAO over six decades in the can exploit new technologies, remains the industry goal. for Western-built jets (WBJ) development of ICAO global such as Performance-Based was the lowest in aviation standards, which are at the Navigation (PBN). PBN can history, surpassing by 39% heart of the industry’s excellent deliver safety benefits by pro- the previous low set in 2010. safety performance. The chal- viding navigators with vertical Over the last decade there lenge is to increase compli- guidance at locations where no has been a 61% improvement ance with ICAO standards. such guidance exists. 2.8 in safety for WBJ. Within this According to ICAO’s Universal excellent overall performance, Safety Oversight Audit Program Compliance with the targets billion regional disparities exist. Africa, (USOAP) audit results, ap- for implementing PBN, agreed Russia and the Commonwealth proximately 41% of ICAO by all ICAO contracting states The number of people of Independent States, Latin Standards and Recommended at the ICAO General Assembly safely flown in 2011. America, and the Middle East Practices (SARPs) have not in 2010, is, however, slipping, and North Africa remain signifi- been effectively implemented even though many airlines have cantly behind the performance on a global basis. There are po- already equipped their aircraft of other regions. (See feature tentially thousands of individual and trained their crews with on page 21 for more on safety examples of non-compliance. PBN. The implementation of 38 performance in Africa today.) PBN procedures by ANSPs is Less than one-third of audited crucial to raise safety levels. A To address these concerns, the countries have implemented systematic investment plan to million industry and governments are a runway safety program, and ensure the worldwide imple- working together to improve only half of those countries mentation of PBN must be put The number of flights in safety by pursuing greater com- require the provision of runway into action. 2011 (30 million by jet, pliance with International Civil end safety areas in compli- 8 million by turboprop). Aviation Organization (ICAO) ance with ICAO’s USOAP. This Adherence to new ICAO standards, increasing participa- can mean that even airlines recommendations is particularly tion in audit programs, tackling with excellent safety records important to prevent a repeat of human factors, and encourag- are sometimes penalized and blanket airspace closures such ing greater sharing of safety added to banned lists, because as that caused by the volcanic 0.37 information. their home nation is not compli- eruption in Europe in 2010. A ant with ICAO standards. co-branded document, Flight losses Safety and Volcanic Ash, has A significant number of ac- been published by ICAO and The global hull loss cidents could be prevented industry partners, including rate per million flights through the use of the latest IATA. It represents a water- of Western-built jets. technologies and procedures shed in the way operations are on approach. Modern aircraft handled in airspace with known or forecast volcanic ash con- tamination. In essence, airlines Western-built jet hull loss rate per million sectors 2001-2011 will decide whether to fly or not, based on a risk assessment. 61% safer The improvement in the accident rate for Western- built jets, comparing 2002 performance to 2011.

18 Audits ensure that global standards are followed. IATA Circle of Excellence

The IATA Operational Safety aims to bring airlines into all of Since ISAGO’s inception in Audit (IOSA) is the world’s only the interconnected audit and February 2008, and up to global airline operational safety safety programs. The support of 1 May 2012, more than 460 audit program. As of 1 May governments and regulators for audits have been conducted 2012, of the 376 airlines on the IOSA and for the IATA Safety with over 100 ground service IOSA registry, 133 (35%) are Audit for Ground Operators providers. ISAGO is supported non-IATA member airlines. In (ISAGO) is vital. IOSA is by 65 governments and airport 2011, IOSA-registered airlines mandated by 11 governments authorities. In early 2012, flew 64% of all commercial worldwide, a figure that IATA is ISAGO received endorse- flights. The total accident rate looking to increase. ment by all 44 members of for IOSA carriers continues the European Civil Aviation to be better than the industry Ground damage costs the Conference (ECAC). The rate and was 52% better than industry billions of dollars per ISAGO Audit Pool includes 44 non-IOSA operators. Since year. ISAGO is a globally- member airlines and consists of Audits 2003, over 1,300 IOSA audits approved audit for reducing 200 ISAGO-qualified auditors. IOSA: IATA Operational Safety have been completed. IOSA ground accidents by eliminating Audit is active in all regions of the ground hazards, for reduc- ISAGO: IATA Safety Audit for world and is mandatory for IATA ing aircraft ground damage Ground Operations membership. and personnel injuries, and for IFQP: IATA Fuel Quality Pool reducing the number of redun- IDQP: IATA Drinking Water Despite the success of IOSA, dant audits. Complementing Quality Pool airlines could do more to the ISAGO program is the DAQCP: IATA De-Icing/Anti- participate in the other safety new IATA Ground Operations Icing Quality Control Pool programs that IATA has devel- Manual (IGOM), which pro- oped. Of the nine IATA audit vides globally standardized Programs and safety programs, IATA procedures, and a new Ground GSIC: Global Safety members participate, on aver- Damage Database (GDDB) Information Center age, in only three. Only 23% program, which provides per- FDX: Flight Data eXchange of IATA members participate in formance monitoring. STEADES: Safety Trend Evalu- more than four programs. IATA’s ation Analysis & Data Exchange Circle of Excellence campaign System GDDB: Ground Damage Database

Western-built jet Total accidents hull-loss accidents (all aircraft types) Fatal accidents Total fatalities 17 11 94 92 23 22 786 486 2010 2011 2010 2011 2010 2011 2010 2011

19 There is a human element Shared safety information is to safety that is being key to embedding a safety addressed. culture worldwide.

Pilot error in handling aircraft A Safety Management System Governments, regulators, and aims to address runway excur- is a contributing factor in (SMS) is a systematic approach the industry have a responsibil- sion risks by capturing aircraft 20% of accidents. To as- to managing safety. It covers ity to embed a genuine safety performance data at over 700 sist with the rigorous training all operator activities, including culture across the industry that airports worldwide. A new that the industry already has areas such as organizational encourages the open reporting Operational Data Management in place, IATA’s Training and structures, accountabilities, of safety incidents in a nonpuni- (ODM) initiative will further Qualification Initiative (ITQI) policies, and procedures. The tive atmosphere. Information integrate operational data with has developed a number of key world’s first SMS assessment sharing is an underlying prin- existing safety information. training programs for pilots and standards for airlines are now ciple of improved safety, and maintenance technicians. included in the IOSA standards the effectiveness of a safety IATA released a number of manual, thus providing the first culture can often be measured documents in 2011 to as- Crew fatigue is also a key area global SMS benchmark. These by reporting rates alone. sist in safety efforts. These of focus. Led by new research standards have been validated included the second edition in recent years, which has to be in full compliance with Two programs have become of the Runway Excursion Risk focused on the timing rather ICAO standards. particularly important for safety Reduction Toolkit, in partner- than just the length of crew data: the IATA Global Safety ship with ICAO and more than rest periods, mitigating fatigue Information Center (GSIC) and a dozen international safety has become an important ele- the Global Safety Information organizations. Also published ment in safety management. Exchange (GSIE). The GSIC were implementation mate- IATA and ICAO are leading provides IATA members with rial for competency-based the standardization process access to aggregated, de-iden- training and qualification of Fatigue Risk Management tified information from IATA’s schemes for engineering and Systems (FRMS), which have safety databases. More than maintenance and the first joint been adopted by a number of 420 organizations contribute EUROCONTROL-IATA safety Civil Aviation Authorities. A joint data into six active databases, bulletin. FRMS implementation guide with analysis and industry was produced in 2011, and trends displayed in more than All these programs are aligned IATA has led a series of regional 25 categories. Over 85% of in IATA’s well-established FRMS workshops to ensure IATA carriers participate in the six-point safety program to sys- the implementation of these GSIC (http://gsic.iata.org). tematically tackle the causes of essential safety systems. accidents. This focuses on (1) The GSIE agreement between safety data management and IATA, ICAO, the European analysis (2) auditing (3) safety Commission, and the US management systems (4) infra- Department of Transportation structure safety (5) operations allows participating organiza- and (6) maintenance. The tools tions to share safety information and projects developed under globally. IATA’s contribution the six-point program are in line includes multiple forms of with ICAO requirements and GSIC safety analysis, including are being increasingly adopted information from the world’s by governments and regulatory largest operational incident authorities worldwide. IATA wel- database, and the only global comes the opportunity to work database of airline audit results with aviation regulators to help through IOSA. raise the bar for aviation safety around the world. Runway excursions continue to be the leading cause of accidents and are being ad- dressed with a three-year 1in 5 series of regional runway safety seminars. In addition, the Flight 20% of accidents count Data eXchange (FDX) database pilot handling as a factor.

20 FEATURE How safe can we be?

Commonwealth of Europe Independent States

North America 0.00 1.06 0.00 North Asia 0.10 0.45 0.00 0.10 Middle East & North Africa 0.34

Industry Africa 2.02 average 3.27 0.72 Asia Pacific 0.37 Latin America 7.41 0.25 0.61 & the Caribbean 0.80 1.28 IATA 1.87 members 0.41 0.25 Western-built jet hull loss Blue is 2011 rate per million sectors. Gray is 2010

In 2011, aviation was safer than average, and was 80% better Center (GSIC) Flight Data consultation with all aviation ever. Even so, safety programs than that for non-IOSA carri- eXchange (FDX) program, stakeholders and predicated on are being strengthened. The ers in Africa (1.84 accidents which will provide performance global standards will help cut ultimate goal remains zero per million flights versus 9.31 assessments at every commer- accident rates even further. accidents. accidents per million flights). cial runway worldwide. Indeed, no IOSA-certified car- The African Safety Summit, The regional breakdown of rier was involved in a Western- The African safety action plan meanwhile, expands the reach 2011 safety figures show that built jet accident in 2011 in is working. Greater participa- of industry efforts to improve some regions are in need of Africa. tion in industry programs will safety on the continent. All more help than others. Africa is help improve the region’s safety African airlines and civil aviation the region most in need of im- The IATA-funded statistics. Nigeria, Madagascar, authorities are invited to attend provement, and aviation safety Implementation Program for and Egypt have all approved to learn best practices and to work on the continent typifies Safe Operations in Africa IOSA at the national level. help drive a safety culture in industry efforts on the global (IPSOA) has also been Poor safety oversight in Africa the region. The summit has two stage. extremely influential. IPSOA remains an issue, however, ambitious goals for 2015: to provided airlines with flight data and more African nations must reduce Africa’s overall accident Although Africa continues to analysis tools, backed up by adopt IOSA as the global stan- rate to the global average and post the worst safety statistics, regional seminars to ensure the dard to follow. to remove African carriers from 2011 saw a 56% improvement data was used accurately. This the European list of banned in the region over the previous was effective in preventing the An example of leadership on airlines. IATA does not support year. IOSA has made a big unstable approaches that are a the continent, Nigeria is in banned lists, preferring to work difference. IATA committed $3 precursor to runway excursions, the process of implement- with airlines to adopt global million to its Partnership for which are the largest cause ing Performance-Based standards in safety. Safety program in Africa to help of accidents. Deviations from Navigation across 24 airports. the continent’s carriers achieve optimal flight trajectories were But elsewhere a general lack of IOSA recognition. The accident reduced 56%. This program investment in African aviation rate for African airlines that ended in 2011, and is being infrastructure is holding back are on the IOSA registry was replaced on a global basis with overall safety improvements. almost equivalent to the world the Global Safety Information Infrastructure built through

#21 SECURITY Achieving convenient and effective security.

Through a closer relationship with authorities, the industry is helping to shape and har- monize the security regula- tory framework.

Governments and the indus- The safety and security of pas- Through the concerted efforts data-alignment initiatives were try must continue to work sengers is always the number of IATA and its industry part- successfully concluded to together to replace inflex- one concern for airlines. Since ners, many regulatory authori- round out the tools available to ible security measures with 2001, flying has become much ties are including the industry countries. ICAO has updated harmonized and responsive more secure, but this has come in their security deliberations its passenger data blueprint security systems based on at the cost of greater passen- at a much earlier stage than based on these agreements, data and risk management. ger inconvenience. With around was previously the case. and IATA has led efforts to 700 million extra passengers Since 9/11, aviation has been create new PNR message expected to fly by 2015, subjected to a large number of standards and to standardize fundamental improvements to security regulations, many im- the use of Extensible Markup the security system are needed plemented unilaterally. Aviation Language (XML). to further strengthen security is a global business, however, and deliver a better customer and aviation-related regulations Other IATA efforts resulted in experience. must, as much as possible, be India committing to a single agreed upon and implemented window for the receipt of pas- globally. The security regulatory senger data and adopting the framework should be designed United Nations EDI directories 39 to recognize the unique chal- for administration, commerce, lenges facing aviation and and transport (UN/EDIFACT) countries should follow a risk-based, message standard. Globally, data-driven approach. paper is being removed from Currently impose API with security processes by regula- another 32 countries For some years, govern- tors. During 2011, IATA worked in the pipeline. ments worldwide have been with its industry partners to making use of Advanced convince the US Customs Passenger Information (API) Border Patrol to eliminate and Passenger Name Record two widely used paper-based (PNR) programs to aid border forms: I-92 and I-94W. security. Information of this 7 kind is a crucial tool in the fight against terrorism and countries illegal activity. Previously, the standards for the transmission Require access to PNR of such data were not always data with another 29 harmonized. In 2011, several countries to follow suit (mostly in the EU).

“IATA is promoting a checkpoint of the future, which I strongly endorse.” John S. Pistole, US TSA Administrator, interview on C-SPAN 10 August 2011.

22 The Checkpoint of the Future—based on the latest New cargo security measures technology with risk-based, must preserve the speed data-driven measures—offers and flexibility of air freight Security regulations must a new vision for passenger and focus on a supply chain avoid duplication. security. approach.

In 2011, five European coun- Despite the successful work In 2010, the discovery of In addition, the Global Air tries embraced the concept with governments to date, much explosives disguised as printer Cargo Advisory Group, a pan- of one-stop security, which remains to be done. To accom- cartridges on board cargo industry alliance of airlines, enables passengers to connect modate growing passenger aircraft was a major issue for freight forwarders, and ship- between flights without need- numbers and evolving security cargo security. Throughout pers, spoke with one voice ing to go through the security threats, the entire checkpoint 2011, numerous reactive, on cargo security issues. It process a second time. This process has to be addressed. emergency measures—includ- pushed, for example, for the streamlined procedures for the In 2011, IATA unveiled the ing calls for the 100% physical adoption of an electronic ver- millions of passengers travel- first conceptual example of a screening of all cargo, demands sion of the standard security ing from the United States to passenger Checkpoint of the for electronic cargo data, and declaration. Europe. IATA continues to be Future (CoF). myriad other proposed screen- a relentless champion of such ing measures—confronted the IATA’s Secure Freight initiative security efficiency measures. The CoF is designed to en- industry. helps regulatory authorities hance security, reduce lines, implement a quality assurance The government of was eliminate the unpacking and IATA promoted a strategy aimed process that secures cargo convinced to suspend a costly packing of carry-on bags, and at providing data for managing upstream at the start of the and ill-conceived security mes- minimize the intrusive searches risk, securing the supply chain supply chain and then pro- saging program to be used be- that characterize the air travel upstream, and incorporating tects cargo from interference tween air traffic controllers and experience today. Year-end new technology. This practical until it reaches its destination. pilots. Also, the US government 2011 witnessed nations like approach helped to blunt or A successful trial program in and European Commission the United States and Canada alter numerous poorly-prepared Malaysia was followed in 2011 were persuaded to collaborate implementing trial programs of regulations and facilitated by test programs in Kenya on developing a system for risk-based security measures at cooperation with the US gov- and Mexico. Further trials are the mutual recognition of their checkpoints that align with the ernment and the European expected in Chile and the cargo security programs. IATA vision. (See page 24 for Commission in formulating United Arab Emirates in 2012. more on the CoF.) test programs for cargo data Secure Freight helps countries collection. enhance their regulatory and operational frameworks and their infrastructure to achieve compliance with ICAO Annex 17 standards.

Anticipated passenger security throughput 2011-2015 (Source: IATA passenger forecast) 3.5 billion (2015)

2.8 billion (2011) 175 700 million million

Average annual increase Total extra passengers in passengers. to pass through airport checkpoints by 2015.

23 FEATURE Do I need to take my shoes off?

Average hourly throughput at airport There is little doubt that air Acceptance, however, is the passenger security checkpoints transport is far more secure easy part. The challenge ahead following the tragic events of is to implement these ideas and avg. 9/11. Still, from a passenger principles before security lines viewpoint, the security process become even more onerous. 350 has too often become intrusive, best intimidating, and inconsistent. Technically, a lot has already Long lines, pat downs, and been achieved. X-ray scanners, 250 constant packing and unpack- for example, are constantly ing blight many a journey. From being improved, and other avg. processing an average of 350 detection methods have come passengers per hour prior to into force. Moreover, innovation 9/11, security checkpoints and competition in the market 149 have slowed to a throughput of are fast giving rise to technol- just 149 passengers per hour. ogy that will perform to high worst Given that traffic numbers are standards on moving passen- growing—2.8 billion people gers. Two components will be 60 took to the skies in 2011—the tested by the end of 2012, and problem will only worsen. a first version of the CoF should be operational by the end of Pre-9/11 Post-9/11 The slowdown is unneces- 2014. sary and partly a result of and Canada’s Nexus are the this meeting is ongoing. Global The complete technology suite the patchwork approach to only two programs designed to harmonization—achieved is still a few years away, but risk security by governments. IATA’s facilitate a smoother security through the mutual recognition assessment using passenger Checkpoint of the Future (CoF) checkpoint process. of multiple programs rather than data is a step that is already looks to resolve these issues through a single scheme—is being implemented in some while strengthening the global Perhaps more important than possible only if consistent countries. The big question security system. It is a risk- where programs are in place data set parameters and risk is how to correctly use and based, data-driven concept to collect data is how the data assessment methodologies are harmonize this data around the that will differentiate screening from those programs is being applied. through the analysis of passen- world. As such, emphasis is used and what, specifically, ger information. Resources can being placed on how exist- constitutes a data set. An ICAO then be focused where the risk ing Known Traveler programs Technical Advisory Group, is greatest. can be leveraged. There are comprising 19 states and in- a number of such programs dustry partners, met to discuss The principles behind this idea in the world, such as the US this issue and many others in have been widely welcomed. DHS’s Global Entry, with most late 2011. The follow-up to They have been endorsed by focused on expediting customs the European Commission, the and immigration clearance. The Chinese government, and the US Transportation Security US Department of Homeland Administration’s PreCheck Security (DHS). And Interpol and 16 countries have signed a statement of principles for next- generation screening.

24 # TAXATION & REGULATORY POLICY Getting a fairer deal from governments.

Aviation creates jobs and The major contributors to 6.27% reduction in its air trans- its air travel tax, and the new drives economic growth. Its industry taxation included dis- portation tax in early 2012 to Danish government abandoned competitiveness and connec- appointing increases in the UK offset the inclusion of aviation in plans to introduce a levy on air tivity should inform govern- Air Passenger Duty and in the the European Union Emissions transport outlined in its elec- ments’ tax and regulatory Indian service tax on air tickets. Trading Scheme (EU ETS), but tion manifesto. In the US, IATA policies. ’s new transportation the Austrian government has worked with national industry tax came into effect in January yet to follow suit. stakeholders to oppose suc- Many governments continue 2011, and Austria began col- cessfully plans for the in- to treat aviation as a cash lecting a similar levy from There were some positive creased taxation of air transport cow. Industry taxation grew 1 April 2011. The German gov- developments during the year. to finance the federal govern- $2.7 billion in 2011. ernment, though, announced a The Irish government reduced ment’s debt reduction strategy.

UK Air Passenger Duty revenue (in £ millions)

26 Passenger compensation If governments regulate in rights in the United States isolation, they will compro- and Europe are an example mise the benefits of aviation. of unintended consequences.

Sales taxes and the imposi- Aviation is a global busi- Despite airlines operating in tion of a value-added tax ness and requires globally highly competitive markets (VAT) on tickets for interna- harmonized rules in which to where customer care quality tional air transport continue operate safely and efficiently. is a major factor in passenger to be of great concern to the Unfortunately, many of the loyalty, regulatory authorities airline industry. The European standards and regulations laid continue to legislate on delay Commission’s Green Paper down by individual countries compensation. Many of these on the future of VAT raises the are not consistent with each regulations lead to market dis- possibility that international air other, leading to increased tortion and uncertainty for pas- passenger travel will no longer costs and passenger incon- sengers. In Europe, a number be exempt from VAT in the venience. Efficiency and the of legal challenges have begun EU. IATA will continue to make ability of aviation to increase to determine the boundaries of the case for aviation to remain its connectivity also suffer as a airline responsibility in the case exempt from any modifications result of individual government of denied boarding. And in the to intra-EU VAT legislation. policies. United States there has been considerable debate over the In addition to its campaigns For example, in Latin America new tarmac delay rule, which against national taxes, IATA is Taxes airlines have pursued a suc- some estimates show will cost proactively opposing broader cessful business model of the US economy over $30 taxation initiatives. These cross-border diversification that billion and fail to tackle the un- include solidarity taxes, the UP has allowed them to generate derlying causes of delays. (See least developed country (LDC) benefits for the business and page 29 for more on passenger adaptation levy, environmen- for passengers. Airline consoli- rights legislation.) tal and carbon taxes, tourism dation however, has exposed taxes, and many other taxes $2.7 uncoordinated regulatory struc- that single out and penalize the tures that represent barriers to aviation industry. IATA believes billion efficient growth and reflect a that such discriminatory taxes highly fragmented region. are counterproductive. In UK, India, Austria, , Seychelles, A positive development is a po- Although it is accepted that Grenada, and Jamaica. tential change to the Brazilian many governments need to Aeronautical Code under finance their deficits, targeting discussion by the national aviation as a revenue source is Taxes congress that seeks to raise a mistake, as it reduces avia- the limit to foreign ownership tion’s ability to drive economic DOWN of Brazilian airlines from 20% growth. (For more on this, see to 49%. If approved, this will the feature on the benefits of represent an important step aviation on page 14.) towards attracting capital and $58 investment in the region. Aside from issues around own- million ership rules for airlines and the regulatory framework for airport In Ireland, Bahamas, charges, two of the most impor- Indonesia, and Sri Lanka. tant areas for harmonization are passenger rights in the case of delays or denied boarding and slot management at airports.

27 Governments are also creat- The key to managing capac- ing unnecessary confusion ity is building more airports over slot guidelines. and runways.

IATA’s Worldwide Slot Any departure from such an in- damaging does not achieve the Slot management issues are a Guidelines (WSG) are the ternational standard negatively objective of a more efficient use distraction from the main rea- accepted standard for the man- affects the airlines, the airports, of capacity son for a lack of capacity in the agement of airport slots and and ultimately the passenger. aviation system, which is that must be globally implemented. The European Commission’s IATA will advocate against there are not enough runways The European Commission proposal to move from the these changes in 2012. They and terminals to cope with proposal for a new slot regula- usual 80-20 “use it or lose it” are enormously detrimental to demand. IATA continually works tion departs from international slot rule to an 85-15 rule in the the global process and could with businesses and trade standards. mistaken belief that this will provoke international retalia- unions to promote the benefits improve airport slot utilization is tion. IATA will also continue to of responsible, sustainable IATA is working toward the a case in point. discuss how best to manage growth at constrained airports. global adoption of a standard congestion at New York–area Examples include campaigning slot management process The 80-20 rule achieves utiliza- airports with the United States for a third runway at for the benefit of the whole tion rates at the most congest- Federal Aviation Administration. Heathrow and at Hong Kong industry. The WSG provide the ed airports in excess of 95%. If International Airport. The best guiding principles, policy, and the new proposals are adopted, use of existing infrastructure procedures of slot manage- the result could be an increase is also vital. IATA has worked ment and are a proven process in empty flights to protect closely with aviation stakehold- for optimizing the utilization of slots, which as well as being ers in Germany to communicate scarce airport capacity. financially and environmentally the economic consequences of the decision to ban night flights at airport.

The 80/20 rule

95% 161 utilization airports

At the most congested Fully 161 of the most airports the 80/20 rule congested airports in delivers utilization rates the world require official of 95% or more. coordination and apply the 80/20 rule.

28 FEATURE What is right for the passenger?

On 23 August 2011, new rules No airline wants to disappoint delay rules, applicable to regulating how airlines may on passenger rights came into passengers. Market forces and domestic flights, took effect in compete in response to the effect in the United States. not regulations are the best April 2010. That is of no benefit demands of the marketplace. They impose a substantial fine guarantee of strong customer to consumers. This discourages creativity on international airlines for service. Passengers only have and adds costs. Of particular tarmac delays of four hours or to walk a few steps at a typical The tarmac delay rules share concern is that the Department more and raise passenger com- airport if they want to change something in common with of Transportation is considering pensation. Further regulations carriers. A competitive market its European counterpart, issuing a third passenger rights came into effect in the United soon weeds out poor service. Regulation 261. Delays and rule that could mandate that States in January 2012 that cancellations are seen purely as airlines distribute their prod- refine how airlines interact with Delays or canceled flights an airline problem. So airlines ucts through specific channels their customers. These regula- adversely affect airlines. They are penalized for bad weather such as the global distribution tions will not fix the root causes put crews and aircraft out of and volcanic eruptions even systems. of the problems and could have position and damage airlines’ though no amount of fine can unintended consequences. reputations. Airlines have to rectify the vagaries of Mother either increase passenger fares Nature. Similarly, air traffic man- to cover the cost of delays or agement inefficiency and a lack accept the cost as a part of of infrastructure capacity are doing business. Both options out of airline control, and yet are unwelcome in a competitive carriers are held accountable. market, so it is in airlines’ inter- ests to avoid delays whenever The European Commission possible. is reviewing Regulation 261. Its lopsided framework was Moreover, the new US rules on exposed by the Icelandic passenger rights provide incen- volcano eruption in 2010 when tive for carriers to cancel should the draconian compensation a delay be expected. The US measures imposed were clearly Government Accountability an unintended consequence of Office estimates that the num- poor regulation. IATA has made ber of flight cancellations has its views known to the review increased by more than 5,000 body, and a report from that since the first set of tarmac body is imminent.

Unfortunately, in the United States regulators are retreat- ing further from the free market principles by which they were guided during the first three de- cades of airline deregulation. In their place is micromanagement

#29

ENVIRONMENT Managing aviation’s emissions.

Aviation remains the only Government support for is- industry sector to have com- sues such as biofuels and mitted to tough global targets infrastructure improvements for carbon reduction. is essential.

Aviation is committed to To address the challenge of In a declaration at the 2012 (See page 34 for more on the sustainable development— reducing carbon emissions, Aviation Environment Summit in industry’s efforts to develop the balancing of economic in 2009 the aviation industry , the industry reaffirmed sustainable biofuels.) growth, social progress, and agreed to focus on delivering its commitment to the sequen- environmental stewardship. three sequential goals: tial targets and issued a call to Technology and infrastructure— action for governments around particularly airspace efficiency Aviation’s commitment and 1. Improve fuel efficiency an the globe to assist in helping improvements—are another action to improve environmen- average of 1.5% annually aviation meet its sustainable vital part of aviation’s sustain- tal sustainability is essential if to 2020 development goals. ability strategy. Airlines are the industry is to continue to 2. Cap net carbon emissions investing billions in the latest grow. The industry is united with carbon-neutral growth Just five years ago, aviation generation of aircraft, which are and working in partnership on a from 2020 biofuels were only a theo- some 20% more fuel efficient comprehensive environmental 3. Achieve a 50% reduction retical possibility. The industry than their predecessors. IATA is strategy with tough targets. But in net carbon emissions by invested in a comprehensive supporting ICAO’s progress on the industry still needs govern- 2050 compared with 2005 and successful testing process. developing a carbon standard ments to step forward with Since the first biofuel test flight for new aircraft. practical policies, particularly The targets will be met through in 2008 more than 1,500 com- on biofuels, infrastructure, and a four-pillar strategy, coordi- mercial flights using biofuels New air navigation procedures, global economic measures. nated and agreed to across have taken place. With the abil- such as Continuous Descent all the main aviation sectors: ity to cut carbon emissions up Approaches and PBN, will also airlines, airports, ANSPs, and to 80% over the fuel lifecycle cut emissions and noise, but aircraft manufacturers. The pil- compared with jet kerosene, they require more investment lars comprise new technology, sustainable aviation biofuels from ANSPs. In addition, more more efficient operations, better are destined to play a signifi- ambitious airspace efficiency infrastructure, and positive cant role in reducing aviation’s programs, such as NextGen economic measures. emissions. in the United States and the Single European Sky (SES), But there remain substantial require significant investment obstacles for airlines looking and political will to succeed. to obtain sufficient quanti- ties of sustainable biofuels at Airlines, meanwhile, continue to commercially viable prices. adopt fuel efficiency measures. Governments have a vital role Through its Green Teams, IATA to play in creating a framework is playing a pivotal role in these in which investment in large- efforts. On average, a gap scale production can occur. analysis by a Green Team has saved 5% from an airline fuel bill. Flight operations and flight dispatch often form the greater part of the savings. Guidance Airlines emitted 676 million metric material, regional seminars, and tons of carbon in 2011. training are also on offer from IATA to assist airlines in their drive for fuel efficiency.

Global man-made emissions Aviation emissions are amounted to 34 billion metric less than 2% of global tons in 2011. man-made emissions.

32 Positive economic measures are necessary, but they must be coordinated through ICAO. Emissions reduction roadmap

The European Union Emissions at the next ICAO Assembly in Trading Scheme (EU ETS) is a 2013. To meet this expectation, tax that will have almost no ef- environmental working groups fect on aviation’s carbon emis- within ICAO are developing sions, will distort competition, options for countries to con- and is a challenge to national sider by the end of 2012. IATA, sovereignty. Airports Council International, the International Coordinating The controversy over the EU’s Council of Aerospace incorporation of aviation into Industries Associations, and the its emissions trading scheme Civil Air Navigation Services is a distraction from the efforts Organization, as observers to to agree on a global, market- ICAO, are able to give technical based emissions solution at support to the working groups, ICAO. Moreover, it threatens but all decision making rests the fragile global economy if with the member countries. nations respond with a trade war. In parallel with discussions at ICAO, the United Nations Voluntary carbon offsetting Europe deserves credit for Framework Convention on provides an option for pas- highlighting environmental Climate Change process sengers to limit the impact of concerns on the interna- continues to seek a compre- climate change. Communication is critical. tional agenda, but its unilateral hensive global agreement on scheme is widely seen as an carbon reduction. The annual Through carbon offsetting, IATA is committed to commu- attack on national sovereignty. Conference of Parties (COP) passengers can neutralize their nicating aviation’s role in the The EU ETS also fails to meet meetings have a wide-ranging portion of an aircraft’s car- environmental debate. As such, the guidelines for market-based agenda, including debates on a bon emissions on a particular it supports the Air Transport measures that were adopted climate change adaptation and journey by investing in carbon Action Group (ATAG), a pan- at the 2010 ICAO Assembly. mitigation fund. Some progress reduction projects. IATA has industry body for promoting These guidelines include was made at COP17 in Durban introduced an industry-wide aviation’s role in sustainable de- avoiding the double counting in December 2011. COP18 will carbon offset program that velopment. ATAG’s dedicated of emissions, ensuring that the be held in 2012 in Qatar. builds on the lessons learned environmental website, www. money raised from any mea- by individual IATA member enviro.aero, has been viewed sures is spent on directly re- The aviation industry keeps a airlines and that addresses the by well over two million people ducing aviation emissions, and watching brief on these discus- challenges raised. since its launch. preventing market distortion. sions and is ready to offer tech- nical advice when requested. The IATA offset scheme, used ATAG’s role in promoting The answer is for a global Similarly, the industry has been by 19 airlines, is designed to aviation’s contribution to emissions reduction framework invited to observe the discus- help partner airlines introduce sustainable development saw it to be agreed to at ICAO in line sions at the Rio+20 meet- an offsetting option to their release a new study exploring with the principles of transpar- ing, which will mark the 20th customers. It brings standard- the social and economic value ency, equitability, and simplicity anniversary of the original Rio ization to the carbon offset- of the industry. The Aviation and to achieve genuine emis- Earth Summit. The meeting will ting process and supports an Benefits Beyond Borders sions reductions by airlines. be used to add impetus toward overall cooperative approach to report, which builds on the sustainable development. managing the industry’s impact work of the Oxford Economics It was agreed at the 2010 on the global climate. The IATA Benefits of Aviation reports ICAO Assembly that propos- scheme is also an option for commissioned by IATA, gives als for a global, market-based companies looking to reduce aviation a strong voice in de- scheme would be brought the carbon footprint of their bates around future economic forward in time for discussion business travel. growth opportunities. (There is more on the benefits of aviation on page 14.)

33 FEATURE Can aviation biofuels work?

Biofuels are integral to the Governments also need to Nevertheless, a plethora of refineries, regulators, and envi- sustainable growth of avia- ensure that loans and tax regulations remains worldwide. ronmental groups. Government tion. But the fledgling industry incentives are available to departments for transport, needs government policies that help support the research and Agreed-upon sustainability enterprise, agriculture, and the promote capital investment in development of biofuels and criteria would improve coordi- environment will also need to biofuels. This would help to to ensure that biofuel produc- nation between regulatory stan- get involved. ensure that biofuels are avail- tion infrastructure gets built. dards and move governments able at a competitive price and Funding academic research toward mutual recognition. It The rewards are there for avia- in the required quantity. into the choice and properties would also lower investment tion, for government, and for of biomass would go a long risks thanks to increased trans- all other stakeholders. Biofuels Reducing the risk from invest- way to deciding which bio- parency. Aviation’s global na- could well become a vibrant ing in biofuels is essential. masses to pursue. A number ture, including common global new industry, providing jobs, in- Although there is already good of good biomass options exist, equipment and worldwide fuel spiring innovation, and assuring evidence that biofuels are drop- from urban waste to algae, with purchasing and sustainability an important new fuel source. ping in price even as conven- some more suited to certain requirements, makes global Around 80% of civil aviation tional jet fuel becomes more climates and geographical loca- standards essential to progress is concentrated at just 190 expensive, the trend toward tions than others. Ultimately, on biofuels. airports worldwide. Any posi- less-costly biofuels needs to it is expected that aviation will tive action on aviation biofuels be accelerated. Governments utilize biofuels derived from a Advancing biofuels usage is would offer the opportunity to can furnish a welcome boost range of feedstocks. not just about government significantly decarbonize an by providing a level playing field cooperation. Equally important entire industry sector. for biofuels with the heavily The harmonization and mutual for the progress of the biofuels subsidized biodiesel sector and recognition of biofuels stan- industry will be a collaborative Governments must give the by prioritizing aviation in energy dards is another area in need supply chain. Understanding industry the encouragement it policy. Other forms of transport of government input. What is how to tackle production costs needs through a set of legal, have alternative forms of energy recognized by one country as is the type of challenge that fiscal, and policy responses that available. Automotive vehicles, a sustainable biofuel should brings together many par- ensure this exciting new energy for example, can benefit from count the same way in other ties that traditionally haven’t stream becomes commercial- advances in electric power. locations. The Roundtable for worked together. These include ized as quickly as possible. Sustainable Biofuels has airlines, academics, farmers already issued guidelines for and agricultural associations, oil sustainability criteria.

The fossil fuel Hypothetical biofuel Actual biofuel emission path emission cycle emission cycle

0% Seedstock 100% Seedstock 80% efficient efficient efficient cycle cycle cycle

34 # SIMPLIFYING THE BUSINESS (StB) StB continues to reduce costs, improve the passenger experience, and create revenue opportunities for airlines.

Industry distribution systems are not keeping up with the pace of change.

Since 2004, the industry has The goals describe a future In line with these objectives, IATA is undertaking distribution completed StB projects on where two initiatives are under way capability work in 2012 that e-ticketing, common-use in distribution capability and focuses on establishing XML- self-service kiosks, bar- • Airline products can be passenger facilitation. The pas- based messaging standards. coded boarding passes, and sold through all channels, senger facilitation work in 2012 This will allow travel agents to automated baggage rules. identifying customers and focuses on trials in automated propose to customers the same personalizing offers and border control. The aim is to dynamic airline offers that are To help assess the industry’s prices reduce congestion around se- available on other channels. needs in meeting the twin • Passenger data is provided curity and customs clearance. (See page 39 for more on the challenges of profitability and by passengers and vali- A new distribution capability distribution challenge.) customer satisfaction, an StB dated by governments also has the potential to gener- White Paper was produced • Passengers can access ate important opportunities for In addition to the project to in 2011 that presented five real-time information on airlines. tackle the distribution chal- goals that will form the basis flight status, wait times, and lenge, there are four active of future StB projects. baggage delivery on any StB projects: e-freight, IATA device in any location e-services, Fast Travel, and • The customer ground expe- the Baggage Improvement rience is hassle free Program. • A seamless end-to-end customer journey is pos- sible through the interoper- ability of travel partners 15% global penetration

Global e-air waybill penetration target for 2012. 4% global penetration $100 Current e-air waybill penetration (April 2012). Average cost to airlines per baggage item lost.

36 E-freight improves the efficiency, speed, and secu- rity of the air cargo supply IATA e-services mark the final chain. Its implementation will step on the path to paperless be a game-changer. travel. 24 hours E-freight is about building a IATA’s vision for a seamless paper-free air cargo supply travel experience for pas- chain. Each international air sengers involves three steps Estimated cycle-time freight item can require more that will remove paper docu- saving per consignment than 30 paper documents, ments from the passenger’s from the e-freight increasing the cost of air freight journey. Step 1, e-ticketing, initiative. and lengthening transport was completed in 2008. Step times. E-freight engages the 2, bar-coded boarding passes entire cargo supply chain to put (BCBP), through which IATA in place standards that remove has enabled mobile phone paper documents from the boarding passes, was complet- process of shipping air cargo, ed in 2010. Step 3 is the ongo- from origin to destination. The ing IATA e-services project. documents are replaced with the exchange of electronic data. E-services focus on a range of paper miscellaneous docu- The first phase of the proj- ments, such as excess bag- ect focused on building an gage tickets or lounge access, e-freight network. In 2011, the which stand in the way of an attention turned to building entirely smooth and seamless up e-freight volume over this experience for passengers. network with a target of achiev- Airline electronic versions of ing 10% e-freight penetration these documents don’t always on live e-freight trade lanes. provide the flexibility that inter- This target was exceeded with line passengers need. the achievement of 11.1% e- freight penetration. The Global Air Cargo Advisory Group (GACAG), a unified voice for the cargo industry that includes IATA; FIATA (International Federation of Freight Forwarders Associations); TIACA (the International Air Cargo Association); and the $0.88 Global Shippers Forum, is taking the lead in supporting Fast Travel initiative e-freight adoption across the estimated saving per industry. passenger.

In 2012, IATA is focusing on mobilizing airlines to adopt the e-Air Waybill (e-AWB), a catalyst for achieving e-freight. The IATA Board of Governors has set a 2012 target of 15% e-AWB global penetration.

37 The e-services project is IATA’s Fast Travel projects mobilizing the industry to are making possible the The Baggage Improvement globally adopt IATA’s elec- seamless, self-service travel Program (BIP) will help the tronic miscellaneous docu- experience that customers industry cut mishandling in ment (EMD) standard. want. half.

IATA’s EMD standard fosters Additionally, the IATA EMD Passengers’ demands for Mishandled baggage is a a paperless environment that standard means that airlines self-service options across consistent element of pas- enables the marketing of a and travel agents can sell these their journey, from boarding senger dissatisfaction with range of optional services, from services quickly and effectively. pass to baggage collection, are the air travel experience and additional legroom while flying Airlines will also benefit from increasing. IATA’s Fast Travel costs the industry more than to a car service when you reach lower costs due to simplified initiative meets this expectation $2.9 billion per annum. The your destination. With the EMD, revenue accounting and back- through six specific projects: BIP program focuses on 200 these services can be pro- office processing and be able check-in, document scanning, airports responsible for 85% of vided by alliance and interline to track and attribute revenues bags ready-to-go, flight re- mishandled baggage claims. partners. faster. Almost 50 airlines booking, self-boarding, and bag implemented EMD capability in recovery. By the time the project closes 2011. at the end of 2012, 80 of these In 2012, the industry has ambi- airports will have received diag- In 2012, the e-services tious plans to expand globally nostic visits from the BIP team, project’s aim is to reach 75% the self-service offering, with a in coordination with airline and EMD industry capability. By year-end target of 100 airline airport sponsors that benefit the end of 2013, the target is and airport pairs offering at from customized solutions. The to achieve 100% usage of the least three of the six solutions remaining 120 will be part of EMD standard in IATA distribu- to passengers. To achieve the self-help program, which tion systems. this target, airport, airline, and allows airports and airlines to ground handler coordination is use the BIP toolkit to reduce crucial, as the implementation mishandling, lower costs, pro- of some of the Fast Travel proj- vide better service, and bench- ects is often fragmented across mark performance against the the passenger value chain. industry.

Through the work of the BIP so far, mishandling has been cut an average of 35% industry-wide. 19 9 mishandlings mishandlings per thousand per thousand in 2007 in 2011

Source: SITA Baggage Reports 2008 and 2012

38 FEATURE What’s on offer?

Unbundling the product has Part of the solution is the IATA the way forward. If customers become increasingly popu- electronic miscellaneous docu- are to be better informed and $32.5 lar with carriers. It involves ment (EMD), a single form that offered greater choice, then breaking down the journey into allows airlines to sell whatever aviation must have the freedom separate components to allow they choose through multiple to develop open channels that billion customers to pick and choose channels. An EMD doesn’t just are available to all airlines and The size of the airline options. Some customers might move a paper document online, all passengers. ancillary sales market prefer lounge access with an it transforms the process in 2011. economy fare, while others may around ancillary services, en- Airlines will then be able to want to ensure a seat with extra hancing customer convenience tailor products according to legroom. and reducing airlines’ costs. an individual’s buying habits, just as online retailers, such as There is a problem, however. The EMD brings far greater Amazon, welcome customers 43.8% While airlines have shown efficiency to the distribution by name and display personal- great innovation in their product setup. But to sell the bespoke ized recommendations. offering, the global distribution journey the customer is clearly increase systems (GDSs) have added demanding, the whole distribu- IATA is defining the business little to the functionality of their tion technology platform needs case for this global, industry- Ancillary sales jumped IT infrastructure. The travel to be revolutionized. standard platform and will 43.8% on 2010. agent’s terminal cannot effec- publish an implementation tively differentiate the variety of IATA is working to establish roadmap by year-end 2012. All airline products available today. industry standards that will en- stakeholders, including GDSs, able airlines to offer their entire are involved in the project. Over half of airline tickets product range to all customers, 60% worldwide are still sold via through all intermediaries, in GDSs, meaning that airline a manner consistent with an revenue from ancillary services airline’s brand and proposition. of sales is unnecessarily restricted. In The choice that consumers val- 60% of air tickets are 2011, ancillary revenues were ue across a spectrum of goods, sold through travel worth around $32.5 billion to from computers to automobiles, agents. the industry, according to an must also be available for travel and IdeaWorks re- services. port. This represented a 43.8% increase on 2010, but it could Overregulation should not be so much more. distract from this goal. In the United States, for example, a proposed regulation will man- date that airlines use GDSs to sell all their ancillary products. But pushing consumers toward a handful of suppliers is not

#39

COST EFFICIENCY Paying the right price.

Airports must balance the need for responsible in- vestment with competitive charges.

Airport and ANSP charges As governments look to raise In 2012, the Brazilian govern- regulatory system is not work- cost the equivalent of 11% of more tax revenue to stimulate ment accepted extremely high ing, so IATA remains active airlines’ annual revenues and their economies or reduce bids for the privatization of the in this debate, seeking to threaten the benefits strong their deficits, the pressure to Brasilia, São Paulo Guarulhos strengthen regulatory effective- air transport growth would raise aviation infrastructure and Viracopos airports. IATA is ness so that charges reduc- bring. charges in 2012 is increasing. endeavoring to ensure that the tions can be delivered in the Airlines and their passengers concessionaires’ performance near future. already pay over $64 billion a is measured by levels of service year in infrastructure-related and cost-effectiveness, not Meanwhile, in some good charges. Cost reductions and simply financial gain. IATA is news, the bill to reauthorize the even freezes in infrastructure trying to work with the conces- Federal Aviation Administration charges are vital to the battle sionaires to find ways to recoup in the United States made no for the financial sustainability of their large investments through reference to the proposed raise airlines. Governments also need greater traffic volumes and in the cap on Passenger Facility to understand the link between improved efficiency, not higher Charges, from $4.50 to $7.00. increased charges and reduced airport charges. Excessive And in Canada, the need to re- aviation connectivity, which, in airport charges discourage solve the long-standing Crown turn, leads to longer-term eco- growth and ultimately damage Rents issue remains with the nomic underperformance. job creation and economic government. opportunities. Industry-wide policy change In Europe, the adoption of the is essential to build a stronger In India, IATA continues to ar- EC Airport Charges Directive framework for cost-efficiency. gue that ’s 346% increase has produced little improve- $64 The ICAO principles of trans- in charges will make it the most ment in the effectiveness of parency, cost-related charges, expensive destination in Asia, consultation or the ability of billion meaningful airline consultation, jeopardizing its aspiration to airline customers to play a equitable charge structures become an international hub. more influential role in the The amount of for all airlines, improvements in Amid signs of possible increas- setting of airport tariffs. Some infrastructure-related productivity, and cost efficiency es at the country’s other major EU member countries have charges airlines and must be applied when deter- airports and a rise in the Indian also been slow to incorporate passengers pay every year. mining infrastructure charges. service tax on air transport ser- the directive’s provisions into vices, IATA is engaging with the national law. government and air transport stakeholders to emphasize the adverse effects of the growing 11% cost burden on the Indian air of revenues transport sector. In South Africa, IATA helped to These charges cost the resolve the dispute between equivalent of 11% of the airport authority and the airlines’ annual revenues. aviation regulator over charges increases. This resulted in original plans for a 190% price increase over two years being modified to a 161% increase $598 over five years. Clearly, the billion The total industry revenues for 2011.

42 Airport Airport $717 $1.920 million billion

ANSP $370 Cost Cost million reductions increases $2.26 $2.38 billion billion

Fuel $3 million

ANSP Fuel $457 $1.176 million billion Cost reductions and increases in infrastructure and fuel charges in 2011.

IATA works with industry • Delivered $4.5 billion in • Secured savings of $2.7 • Realized savings of $1.2 partners and governments to cost savings by working billion in airport charges, of billion through IATA cam- reduce the charges and taxes with airports, ANSPs, gov- which $717 million repre- paigns on fuel fees and levied on aviation infrastructure ernments, and fuel suppli- sented real cost reductions. taxes. around the world. Broader sav- ers, of which nearly $2.3 • Achieved savings of $608 • Saved $47 million when ings campaigns are presented billion were real reductions. million in air navigation the US Department of both as a total of removed or But cost increases, unfortu- service charges, including Agriculture shifted the costs modified proposed taxes and nately, grew by almost $2.4 $370 million in real cost of its Animal and Plant charges, as well as “real reduc- billion. reductions. Health Inspection Service tions” resulting in cost savings user fees. to airlines’ bottom line.

43 The regulatory oversight Weak targets and even of activities related to the weaker resolve is undermin- jet fuel supply chain and ing progress toward a Single refueling services must be European Sky (SES). strengthened.

The same cost pressures that submitted in December 2011 Sweden made progress during Monopolistic fuel suppliers and are pushing on airport charges indicate a shortfall of 1.7%, or this period—evidence from a lack of cost transparency are also affecting ANSPs. $171.8 million (€133 million) in early 2012 suggests that more holds aviation back in several IATA continues to campaign 2014. Moreover, the plans also states are working toward FAB key markets. Campaigns con- for reductions in air navigation fail to comply with the delay implementation. However, IATA tinue for the improved trans- charges. It also calls for fairer targets set at an EU-wide level. has already noted significant parency of costs and formula pricing regimes to incentivize This is the first reference period missed opportunities for cost prices based on international efficiency improvements in air under the Single European efficiencies, as ANSPs are still standards in Angola, Brazil, traffic management. Sky Performance Scheme aiming to keep separate opera- China, the Republic of Congo, legislation, and its success or tions rather than work under a the Dominican Republic, IATA’s close work with the failure will set a precedent for single FAB. Kazakhstan, Mexico, Qatar, the European Commission on a all future reference periods. Russian Federation, and the more unified European airspace If the shortfalls are not rem- Meeting the SES targets is Ukraine. IATA is also work- has helped to finalize the SES edied by the Commission, the critical to European competi- ing to ensure that regulations performance and charging Performance Scheme will lose tiveness—ensuring airspace ca- introduced in the Russian scheme regulations, resulting in its credibility. pacity, improving safety, cutting Federation to favor open an end to the full cost recovery emissions, and halving costs. markets result in a gradual shift mechanism and a fairer scheme In a related matter, all EU IATA will continue to press for away from the monopolistic fuel based on sharing risk in traffic Member States need to join tougher action by the European supply situation at the federa- volumes between airlines and Functional Airspace Blocks Commission and for more chal- tion’s airports. ANSPs. (FABs) by 4 December lenging performance targets 2012, according to the SES from 2015. Fuel supply reliability remains The success of the SES II legislation. Although little an area of IATA activity. In Performance Scheme is at risk, was done in 2011 to achieve 2011, this included airport- however. Despite the fact that this goal—only and specific improvements, such as countries agreed in 2010 to in jet fuel tankage and supply cost reductions at an EU-wide capacity, at London Heathrow, level of 3.5% per year from Nice, and various African 2012 through 2014, their locations. National Performance Plans

The Single European Sky needs every European nation to cooperate for airspace reform and efficiency improvement. But only Denmark and Sweden are on schedule to establish a functional airspace block by the end of 2012.

44 FEATURE Why does economic regulation matter?

To privatize or not is the deci- The public-private partnerships All eyes, meanwhile, are on The long-term interests of air- sion of governments. But when seen in India show what can Brazil, with the soccer World port investors and of local com- it comes to critical infrastruc- be done—and what cannot be Cup and the Olympics on the munities and airline customers ture, such as airports, a regula- accepted. A single till prin- horizon. To achieve the fast im- are best served by a regulatory tor is needed to balance the ciple has been endorsed that plementation of much needed model that supports sustain- profit incentive with the need says that all revenues, includ- infrastructure upgrades, the able growth. That calls for a for cost-efficient services and ing commercial income, must Brazilian government auctioned competitive charging structure sufficient capacity. The regula- be considered when decid- the concession rights to three and a development strategy tor must have the strength to ing user-charge levels. IATA airports earlier this year, includ- that ensures the availability of enforce transparent and fair fully supports this approach. ing São Paulo Guarulhos, the efficient, quality infrastructure. charges. Moreover, the new terminal at country’s main hub. The auction Delhi was constructed in just surpassed the government’s Too often, airport regulators 36 months to provide much expectations. The winning bids lack teeth. The list of air- needed extra capacity. for Guarulhos, Viracopos, and ports taking advantage of lax Brasilia airports reached $13.4 regulation and abusing their Yet there is a flipside to this. billion—five times the govern- monopoly position increases as Delhi applied for a mammoth ment’s stipulated minimum. privatization progresses. BAA 780% price hike in 2011. How charges are tackled, raised its user charges 86% The Indian regulatory author- and the quality and extent of from 2007 to 2012. Macquarie ity approved an increase of infrastructure improvement, will Airports, driven by the banking 346% over two years that will need to be followed closely. mentality of its parent company, make Delhi the most expensive The government being both often posts near 50% returns. airport in Asia. The lesson to regulator and shareholder is not Other examples exist around learn is that excessive conces- the most promising business the world, from New Zealand to sion fees can cause damage. model. South Africa. The 46% of revenues to be paid to the Airports Authority of And yet a successful privatiza- India certainly exacerbates the tion model is easy to envisage. problem. There needs to be a service level agreement that specifies deliverables, including reinvest- ment levels and the waiting time for check-in and baggage delivery. These deliverables should be benchmarked against best practice, especially as traf- fic levels rise. Failure to meet agreed targets should incur substantial penalties, and re- peated failure should mean the withdrawal of the concession.

#45

INDUSTRY SETTLEMENT SYSTEMS Providing trusted financial services.

IATA’s Settlement Systems (ISS) are evolving to improve control.

IATA, the industry’s financial IATA processed $367 billion in In 2010, the IATA Board of Following the successful hub, safeguards reliable its passenger and cargo finan- Governors decided on a pack- migration of the remittance and standards and account settle- cial systems in 2011. It handles age of measures to further settlement functions to five ment that enable passengers the industry’s money safely and strengthen the industry’s regional hubs (Amman, Beijing, and travel agents, shippers efficiently. settlement systems to ensure , , and Singapore), and forwarders to access consistency based on a global work has now begun on migrat- airline products and services IATA’s passenger and cargo standard. ing the remaining ISS activities, anywhere in the world, in a agency programs connect including agency management single currency. travel agents and freight for- Called the Strengthening ISS and customer service, from warders with airlines, enabling (SISS) program, these reforms IATA local offices to these same a key distribution channel for focus on standardization, regional hubs. These migrations the industry. The Billing and simplification, and centraliza- will take place on a country- Settlement Plan (BSP) and the tion. SISS is the culmination by-country basis, beginning in Cargo Accounts Settlement of a process that started in the the third quarter of 2012 until Systems (CASS), major com- 1990s when independently run completion in mid-2014. ponents of these programs, BSP/CASS operations were provide an efficient, reliable, incorporated into IATA’s system. The migration of the settle- and cost-effective means of Gradually, IATA has standard- ment activities strengthens the simplifying the selling, report- ized the procedures and rules, safeguards and security of the ing, and remitting procedures of and SISS will finally put in place industry’s money while enabling airline tickets and air waybills. one operating methodology for the country offices to focus They allow a global industry to managing the industry’s money. more fully on customer relation- distribute global products in a That means one global ISS ships, risk management, local global marketplace. standard operating procedure, governance issues, and stake- one structure consisting of pro- holder groups. These groups In an era of alliances and fessional teams regionalized in include the Passenger Agency interline agreements, settling hubs, and one tool in the form Joint Councils, Cargo Agents between airlines and other third of an integrated IT system sup- Liaison Working Groups, and parties can be a complicated porting the standard operating Airline Local Customer Advisory process. The IATA Clearing procedure and the structure. Groups. IATA country offices House (ICH) facilitates the off- will perform all other non-set- setting of billings between over tlement system activities, such 350 airlines and around 80 as the Simplifying the Business associated companies in each program, member and govern- weekly settlement. In addition, ment relations, and IATA prod- it reduces industry financial ucts and services. The latter risk by minimizing the time and includes manuals; training and money involved in outstanding consulting; and safety, opera- intercompany debts. tions, and infrastructure.

The IATA Currency Clearance Service (ICCS) helps airlines efficiently manage the repa- triation of their worldwide sales funds at optimal market exchange rates so that airlines do not need to actively manage the repatriation process.

48 521 99.971% million BSP collection success Number of BSP $367 transactions billion Total funds processed 66,771 Total number of BSP agents

176 Total countries and territories in BSP 11,114 Total number of CASS agents 99.990% CASS collection success

$249.4 billion Processed $33.4 by BSP billion *Figures quoted are 2011 data. Processed $49.5 by CASS $34.7 billion Settled by billion the ICH Processed by the ICCS

#49 Simplified Interline Settle- Airline infrastructure charges ment (SIS) is the biggest IATA works with governments are reduced through the IATA change in billing and settle- to repatriate funds from Enhancement and Financing ment since 1947. restricted markets. (E&F) Service.

The newly developed SIS In the first three months of its According to the preliminary The IATA E&F Service offers web interface is an electronic operation in the fourth quarter 2011 Remittance of Foreign ANSPs and airport authori- invoicing system that optimizes of 2011, SIS processed $1.68 Balances (RFB) survey results, ties the opportunity to improve interline billing and settlement billion in settlements, up to $531 million of members’ funds the efficiency and quality of processes. In SIS, electronic 24% of the ICH settlement remains delayed or blocked their user charges invoicing billing files submitted by mem- value, each week. On 8 May in 14 countries. This is an and collection process. The bers are automatically pro- 2012, the second stage of SIS increase of $15 million over service helps users to strength- cessed and sent to the relevant was implemented, extending the 2010 year-end figure. Of en their cash flow and ben- ICH for automated settlement, SIS to cover cargo and the this total, $339 million is in efit from economies of scale. and the output files are then Universal Air Travel Program, Venezuela, representing 64% E&F can also help airports and created and submitted to the thus completing the delivery of of the total. Some progress ANSPs to secure cost-effective partners. In this way, paper no the new service. was made with the Venezuela financing for investments in civil longer circulates among the Central Bank in 2011; average aviation infrastructure. billing partners and, thanks delays were reduced to less to the new billing standards, than five months, down from 10 Most of the invoices produced account posting and reconcilia- months in 2009. Other markets by E&F can be submitted tion can be automated. where airline funds are withheld electronically to the airlines and or delayed include Sudan, Iran, settled through the IATA settle- Eritrea, and Algeria. ment systems. Airlines, airports, and ANSPs benefit from the IATA helps airlines to access service through standardized funds from these restrictively invoicing and highly secure and regulated markets and coun- efficient settlement processes. tries. Based on the results of the annual RFB, IATA works In 2011, IATA’s E&F Service with airlines to lobby local processed more than $2.1 bil- governments and authorities lion in 48 countries. with a view to speeding up the repatriation process.

$531 million Total member funds in $ millions blocked in 14 countries.

50 # INDUSTRY SOLUTIONS Creating products that build better businesses.

IATA’s Business Intelligence Services (BIS) provide an un- matched portfolio of tools for airlines and the supply chain.

To cover the cost of its work IATA’s global reach and in- In 2011, the BIS’s flagship and tourism boards are on on behalf of member airlines, depth involvement across every product PaxIS substantially the AirportIS customer list IATA generates revenue activity of the airline business increased its scope and cover- too. These organizations use through a wide range of gives it an unrivaled ability to age. IATA signed an agree- the data to strengthen their value-added aviation solu- tailor products and solutions to ment with the Airline Reporting understanding of the competi- tions in areas such as expert aviation businesses looking to Corporation (ARC) to build tive environment and to identify consultation, training, and gain a competitive edge. IATA and share a global database trends in international tourism. business intelligence. is both a trade association and of ticket data, which, under the AirportIS gives them a solid a business partner. Through its Direct Data Service project base for decisions in terms services, products, and training banner, now has 44 carriers of marketing strategies and programs, IATA helps drive enrolled. The new database will resource allocation. innovation and value for the improve upon PaxIS by offering aviation industry. access to 90% of global travel The CargoIS database is agent sales. In 2012, airline di- sourced from IATA’s global rect sales will be brought online billing system, CASS, where as the new service builds its list airlines and freight forwarders of participants. settle $33 billion worth of air- freight charges. CargoIS is the AirportIS is used by airports only business intelligence tool around the globe for marketing that reflects real transactional and air service development. It data. In 2011, CargoIS was also gives industry third parties used for the first time by freight a strategic window into global forwarders, airports, and manu- passenger streams and travel facturers. This was in addition patterns. As an example, in to the hundreds of airlines that 2011 a hospital in Canada already use the system—a used AirportIS to create a glob- group that represents 75% of al air passenger flow that fed the world’s air cargo volumes. its model of how viruses spread globally. Also, players from the Airs@t, IATA’s online airline financial industry purchased customer satisfaction bench- data products to enhance their mark survey, has already analytical abilities. Government established itself as IATA’s fast- What are the top agencies promoting tourism est-growing service. In 2011, three aspects of a nearly 50,000 international flight that most need passengers flying through 27 of the world’s busiest airports improvement? participated in Airs@t. Airlines benefited from Airs@t by com- paring their performance with that of their competitors across 65 customer touch points. By collecting competitive passen- ger feedback, Airs@t clients are able to analyze the complete passenger travel experience, from reservation and check-in to in-flight services, entertain- Extract from Airs@t data ment systems, and baggage Figures collected from business- and economy-class passengers delivery. during the period January-December 2011, flying on long haul flights on the following Airs@t routes: a) Europe-North America (transatlantic), b) Asia-North America (transpacific) and c) Europe- Middle East-Asia. Total number of surveyed passengers, 43,000+.

52 The IATA Training and De- velopment Institute (ITDI) IATA Consulting delivers ef- provides training for 65,000 ficient solutions that promote aviation professionals every sustainable growth. year.

Airs@t results highlight service IATA Consulting delivers solu- Second, an emerging state Skilled people are the back- areas of strength or where a tions for airlines, airports, and carrier in Southern Africa com- bone of successful aviation carrier’s product portfolio re- civil aviation clients. The IATA missioned a comprehensive businesses. The ITDI is focused quires attention. In conjunction Consulting team brings de- review of its strategic busi- on meeting the air transport with IATA’s data products, car- cades of hands-on experience ness plan. Recommendations industry’s need for certified, riers can analytically determine and knowledge of industry-wide included fleet rationalization high-quality training. IATA is a where improvements will have best practices to customers and a new network plan that leader in innovative learning a materially positive impact on in each of these focus areas. included a hub strategy versus technologies, such as mobile revenue generation and their The team draws on its wealth point to point. The results were learning, that reach out to as brand positioning. In 2011, of strategic planning, commer- presented to the country’s many students as possible with Airs@t coverage expanded be- cial, operational, and regulatory President, who approved the an affordable offering. yond transatlantic and Europe expertise to find solutions for strategic changes. The IATA and Middle East-Asia routes to a diverse customer base. In team is now on site helping the In 2011, the ITDI partnered cover transpacific and intra- so doing, the team is able to carrier implement the plan. with some of the world’s European flights. support IATA’s strategic objec- leading educational institu- tives for the broader aviation Third, a leading Gulf airline tions (Harvard University, industry. undertook a detailed evalua- University of Geneva, Nanyang tion of manpower levels and Technological University, and Three examples highlight some work practices to rationalize Stanford University) to augment of the work IATA performed in home-base ground operations. general management offerings 2011. First, a member airline Despite restrictive employ- and to ensure that courses in Asia needed an integrated ment laws, the team delivered are delivered using the most operations control command a packaged plan that produced innovative learning techniques. post at its home base while substantial savings. Combining the widest pos- undergoing a network rational- sible range of course material ization and introducing a new with a strong geographical and passenger facility. The project cultural reach, the ITDI provides established a world-class rewarding opportunities for integrated operations control every phase of an aviation pro- center, which prompted the fessional’s career. best on-time performance the carrier had achieved in years. To expand online learning, IATA chose Harvard Business MBA in Publishing as a premier leader- Air Transport 1 ship development partner. The Management Harvard ManageMentor online modular e-learning tool was Professional incorporated into the training certifications 3 curriculum and is offered in English, Spanish, and Mandarin. Countries covered 150

Training courses 300

Training partners 400

Students trained yearly worldwide 65,000

53 IATA provides the means for Strategic Partnerships offer all aviation stakeholders to IATA’s data and corporate the aviation supply chain a come together in high-quality publishing helps airlines with stake in shaping the indus- conferences, symposiums, regulatory compliance. try’s future. and meetings.

Timatic, the industry’s leading The Strategic Partnerships In 2011, more participants In November 2011, the first solution for passenger travel Program is a platform for than ever joined IATA’s events Global Aviation Human Capital document compliance, con- aviation solution providers to to network and gain essential summit was held in Singapore. tinued to expand its offerings conduct business and meet key insight on the future of com- Over 150 delegates from in 2011. Timatic AutoCheck industry stakeholders, as well mercial aviation. IATA’s events airlines, airports, and aviation was adopted by as maintain existing relation- cover many areas, including authorities heard and shared on behalf of its members to ships. Strategic Partners gain airline schedules, air cargo, trends and best practices in provide the Travel Document a unique insight into airlines’ aviation law, aviation security, people management, training, Compliance data and rules en- priorities and have the op- commercial strategy, ground and development. gine to power Star’s integrated portunity to be recognized for handling, revenue accounting, Auto Document Check. working with IATA in serving the and, most recently, the travel On the air cargo calendar, air transport industry. value chain. the annual World Cargo Also in 2011, IBM completed Symposium (WCS) has evolved the integration of Timatic IATA’s Strategic Partnerships Where possible, IATA events into a premier global event, AutoCheck capability into its Program membership includes combine conference and with almost 1,000 attendees. In common-use check-in kiosk of- over 340 of the world’s lead- governance issues. During March 2012, the sixth edition fering. By automating the docu- ing aviation suppliers. These industry meetings, delegates of the WCS combined high- ment checking process in line partners participate in the de- shape standards and pro- level discussions with detailed with IATA’s StB recommended velopment of global standards cesses by defining and passing technical sessions, appealing to practice, airlines may, on and address industry priori- resolutions or recommended all parts of the air freight supply average, save $1 for every two ties in areas such as opera- practices. In addition, they chain. international passengers flown, tions, passenger experience, gain valuable insights into the through reduced immigration cargo, alternative fuels, and the latest commercial, regula- fines, more efficient passenger environment. More than 100 tory, or operational trends and processing, and increased work groups and task forces developments. IATA events penetration of passenger self- are open to Strategic Partners. offer the chance for aviation service check-in solutions. The Simplify the Business professionals to refresh their Think Tank, in which airlines network while experiencing the The air transport industry relies and industry suppliers together conference tracks taking place on IATA as its authoritative mapped out their vision of the in sequence with their industry source for regulations, best future for passenger travel, was meetings. practices, conference resolu- launched in 2011. The project tions, and a wealth of data. The served as an example of a The first World Passenger latter includes data on most successful business initiative Symposium in 2011 attracted aspects of airline operations, in- developed in collaboration with nearly 600 delegates. This con- cluding safety, security, opera- the Strategic Partners. ference’s outcome influenced tions, taxes, and finance. This the recommendations that were knowledge base of mission- submitted to the IATA Board critical information is presented of airline CEOs, which defined in over 250 electronic and print IATA’s priorities for 2012. publications and in electronic data format where applicable.

54 # IATA offices

Main offices Regional offices

Montreal - Head Office Africa Europe The Americas 800 Place Victoria Sandown Mews East Block Torre Europa 703 Waterford Way P.O. Box 113 88 Stella Street 95 Paseo de Castellana Suite 600 Montréal, Québec H4Z 1M1 Sandton Madrid 28046 Miami, Florida 33126 Canada 2146 Spain United States of America Tel.: +1 514 874 0202 South Africa Fax: +1 514 874 9632 350 Avenue Louise North America Asia-Pacific Louizalaan 1201 F Street N.W. Geneva - Executive Offices TrpleOne Somerset Brussels 1050 Suite 650 33, Route de l’Aéroport 111 Somerset Road, Washington DC 20005 P.O. Box 416 #14-05 Somerset Wing United States of America CH - 1215 Geneva 15 Airport Singapore 238164 Middle East & North Africa Switzerland Business Park Russia and CIS Tel.: +41 22 770 2525 China & North Asia Building No.8, Block 1 Fax: +41 22 798 3553 3F East Tower King Abdullah Street Paveletskaya Square World Financial Center Al Shaab Roundabout 115054 No.1, Dongsanhuang Zhong Amman 1194 Russian Federation Road Jordan Chaoyang District Beijing 100020 People’s Republic of China www.iata.org